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What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially

• SoftTalker 4y ago
  That’s normal. I bought my first house in the early 1990s. Saving the down payment was tough. I lived in a real shithole apartment, anything nice and the rent ate up too much of my cash flow. And I I had to pay PMI, but the monthly payment was still cheaper than rent.
  • uoaei 4y ago
    Normative statements don't hold much weight for justifying why things are the way they are.
    • nostromo 4y ago
      Downpayments need to be substantial because the owner needs to have skin in the game. Otherwise the borrower could walk away from the house and the mortgage with very little downside.
      • Retric 4y ago
        Someone walking away from a house doesn’t destroy the house. The lender’s risk is therefore limited to the difference between purchase price and actual value of the property. Which is something they can hedge or simply not make a loan if they think the property is wildly overvalued.
        • sokoloff 4y ago
          A down payment of 20% provides some of that exact cushion (and makes it less likely for a borrower to casually walk away from a house that fell in value or was otherwise a poor purchase).
          • Retric 4y ago
            In theory sure, but 20% is an arbitrary regulation not some measurement of risk.
            • sokoloff 4y ago
              Do you think it was chosen without any regard to the risk-mitigation that it offered?
              • Retric 4y ago
                Any regard is a really low standard, minimal is more accurate. You don’t end up with nice round numbers like 20% which never changes due to economic conditions etc from calculating some formula.
                • quonn 4y ago
                  If you look between countries you would see that it‘s usually around 15-25%. So it‘s around 20%, almost everywhere.
                  • Retric 4y ago
                    The global range is wider than that and reflects the reasonable range of this kind of regulation. If it’s say 75% then what’s the point of a loan? On the other hand if it’s 1% what’s the point of the regulation? Regulators are basically picking a number between 3.5% to 35% and 20% is a nice round number in the middle of that range.
        • bumby 4y ago
      • rootusrootus 4y ago
        The whole point of interest is supposed to account for that risk. People buy cars all the time that cost a decent fraction of what a house does, and nobody bats an eye when they finance 100% (or more) of the value. And a car depreciates and moves. The bank knows where to find the collateral for a mortgage, and the value generally appreciates.
        • makomk 4y ago
          We had a whole, massive global financial crisis that was essentially caused by the fact that this does not work for housing because the risks are so heavily correlated: a large chunk of society finds that they cannot afford the downpayments and defaults all at once, which causes house prices to decrease and the economy to collapse, which in turn means that more people default on their mortgages. It's a systemic risk that affects everyone and that the markets alone do not protect against, which is why regulators have cracked down on mortgage lending so strongly.
          • adgjlsfhk1 4y ago
            the problem isn't not requiring 20% down. the problem is not setting interest rates appropriately. the banks did a calculation of interest based on housing prices growth, but if you just do the calculation with stagnation/minor depreciation you get an appropriate interest rate for the lower collateral
          • olddustytrail 4y ago
            No, we didn't have a global financial crash because a few poor people couldn't pay their mortgage. We had that crash because some people gambled huge amounts of other people's money on whether these mortgages would be paid. I used to write some lengthy posts about this and then a few months ago The Big Short was on TV, I watched it for the first time, and realised it was saying exactly what I'd been trying to explain for years. So just watch that. Plus it has Margot Robbie explaining the technical terms in a bubble bath, so if you don't get it the first time, you can rewind and watch again.
      • uoaei 4y ago
        That's a much better reason, or, at least, something to respond to. Thank you. Accountability on the part of the prospective owner can be achieved in multiple ways, but using down payments probably minimizes the amount of bureaucracy and following-up in how authorities manage this kind of thing. Of course, implementing it this way creates "structural inequity", i.e., a process that inherently separates one group into two groups along lines that members of that group have little to no control over. Obviously the property not-having-money is correlated with other factors such as skin color and whether your parents went to college, which creates divisions along lines that are not just economic but socio-economic, and influence the development of not just that person but also everyone who depends on that person, including future generations. I would be very interested to hear more from systems theorists on other kinds of methods that don't reproduce these kinds of correlated outcomes.
        • TheOtherHobbes 4y ago
          Are these outcomes unintended? Hierarchies need hierarchy. Economic apartheid is one of the most common - and least questioned - ways to enforce hierarchy. It's the usual problem of defining the difference between a progressive and a regressive economy. Regressive economies claim to be about "freedom" but in practice it's a very selective freedom that benefits a few small sectors and acts as a brake on innovation, development, and entrepreneurship for everyone else. Consider all the businesses that could have been started by talented people currently spending all of their income on rent. It's a brittle, oppressive outcome. Progressive economies rely on wealth redistribution to create something closer to a genuine meritocracy. There's a whole PR industry devoted to denying this, but it's not a coincidence that the US was a powerhouse of innovation when redistributive taxes were at their highest. And has stagnated as economic apartheid has become more entrenched.
          • uoaei 4y ago
            > Are these outcomes unintended? That's the crux of the political debates going on today. What kinds of values are represented by the status quo, and what kinds of values may replace a (retrospectively) naive approach to meritocracy.
      • __derek__ 4y ago
        Your GP wrote: > I had to pay PMI ... meaning that they did not have a substantial downpayment. Assuming they bought in Washington state, they probably also had a non-recourse mortgage.
      • briantakita 4y ago
        The owner does have skin in the game. It's their home. If the down payment is too high, many people are prevented from owning a home. This causes these people to be stuck in the rental trap, paying >2x what a mortgage payment would cost. Good for landlords & those in the rental industry, bad for everyone else.
        • ejb999 4y ago
          They don't have skin in the game if they borrow 100% of the value of a house - house drops 20% in value, they just return the keys and walk away - heads I win, tails you lose. Banks don't want to play that game and I can't blame them.
          • cool_dude85 4y ago
            You're describing a "heads I win, tails you win" situation with no down payment. If the house drops in value, the borrower walks away and "wins". If the house appreciates in value, the borrower stays and the bank receives X% interest, on time, in full, for 30 years and "wins."
          • hd95489 4y ago
            Only in a non recourse state
          • briantakita 4y ago
            Who would want to walk away from their home? The people living on the streets perhaps? Credit inflates the housing markets. Houses used to be bought outright without credit. Credit is top heavy, where a small number of parties can obtain enough credit to buy many houses while an increasing amount of people cannot obtain credit to buy a house to live in. The people who already own property benefit from increasing valuations, while people entering into the housing market bear the costs. It's gotten to the point to where people with 6 figure incomes cannot afford a house. It seems like the instability of the housing prices is largely due to the volatility of credit markets. If housing was not emphasized as an appreciating asset class to be hoarded by speculators who want to grow rich from housing, then more people, who are now stuck in the rental trap, can live in their own home. The situation we have now is that non-speculators who want to own a home have to bear the risk of a credit inflated & volatile asset when all they want to do is own a house & not pay > 2x rental costs. Those who do successfully play the game now live with neighbors who also play the game, instead of a more diverse crowd of people they would rather be neighbors with. The banks created & profit from this mess & are bailed out. The non-speculating aspiring home owner pays the costs.
  • actionablefiber 4y ago
    > I bought my first house in the early 1990s. Saving the down payment was tough. Compare housing prices since 1990 vs. wage growth over the same period. For the overwhelming majority of people entering the workforce today, there is no way to realistically save for a down payment unless you forego saving for anything else - no 401k, no IRA, no emergency fund, no car, no family.
    • jalk 4y ago
      Don't forget that the interest rate was around 10% in the early 1990ies
      • ejb999 4y ago
        My first mortgage was 10.5% in 1989.
      • triceratops 4y ago
        Yeah that's one reason why houses in the 90s were more affordable.
        • Scoundreller 4y ago
          Affordable for people planning on paying down the mortgage, but horrible for investors expecting to just refi and refi while maintaining a constant high double-digit LTV. Think about them! /s
    • cko 4y ago
      I think a more apt comparison would be monthly mortgage + interest payment divided by price per square ft over time. I suspect it just barely tracks inflation. Houses have gotten bigger and interest rates have fallen since then.
      • actionablefiber 4y ago
        I understand the bit about interest rates. But the disappearance of starter homes from the market is part of the problem, not a cool accounting trick to hide it.
  • kitsunesoba 4y ago
    I too went for a down payment below 20% (somewhere closer to 5%) because saving up a full 20% would've been daunting to say the least, and as such pay PMI. Still a better deal than renting by a large margin, and the feeling that the cash being put into payments is going towards owning something rather than being set aflame is nice. That said I agree with the sibling comments that 20% down payments shouldn't be as out of reach to as many people as they are. Housing prices are ridiculous.
    • findthewords 4y ago
      We can take a look at the St. Louis Fed "Fred" database take a look at historical affordability of 20 % down payment. Let's divide two numbers, a and b to get a ratio of yearly median wage divided by median house price, from 1980 to 2023. [1] a) Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over b) Median Sales Price of Houses Sold for the United States We see that the a/b ratio was 0.25 in 1980, and has declined to 0.05 today. Therefore, a 20 % down payment in 1980 would equal to a 4 % down payment today. Conversely, a 20 % down payment on a house in 2023 (median wage, median house) is equal to a (25/5)*20 % = 100 % down payment in 1980! [1] https://fred.stlouisfed.org/series/LES1252881600Q#0 https://fred.stlouisfed.org/series/LES1252881600Q#0
      • kitsunesoba 4y ago
        Wow, that's brutal. Not much more can be said.
      • brewdad 4y ago
        Ok, but in 1980, you needed that 20% down payment because mortgage rates were approaching 20%.
  • turndown 4y ago
    Thank God things were done terribly back then too, or else you'd agree with progress!
• Muromec 4y ago
  And here at the bottom of the see, there is no down payment (financing up to 100%), but young renters still can't get the a mortage of the same monthly amount as they pay rent, because of regulatory reasons -- mortage ceiling is defined as something like 5x gross yearly salary. Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.
  • jedberg 4y ago
    That sort of makes sense. When you own a property, you have to maintain it and pay property taxes. When you add all that up, you either need a lot more than rent, or you need the mortgage to be lower than rent so you can afford those other expenses.
    • BobbyJo 4y ago
      100%. If it's an older house, the mortgage might not even be half your costs for the first few years, while you get everything that breaks back in good condition.
    • mxkdodi 4y ago
      It makes absolute sense, because maintenance costs are non-negligible. I just paid a fifteen thousand dollar plumbing bill. Since rent would include the ability to call the landlord to make him fix that, I sure would expect rent to be higher for the same place than my mortgage is. Last year I spent twenty grand on a new roof. What's next? Idk, but that's why my mortgage isn't half of my salary. If it was rent, these things wouldn't be my problem. That's the trade-off.
      • ghaff 4y ago
        Depending on what you include I figure property taxes, insurance, ongoing maintenance of my house and property are a good $1K/month (obviously with a fair bit of lumpiness for large projects). Some things you can postpone and some things you can trade money for your time & effort but it's still a non-trivial amount.
• kongolongo 4y ago
  I don't think that necessarily is a a bad thing. Just because someone can theoretically afford a mortgage payment now its pretty difficult to predict say 5+ years out whether or not that steady job will hold, especially if they're young and have a short credit history. The down payment adds a cushion for that risk. There's less inherent risk to renting, you're looking at a commitment of 6 months to a max of maybe 2 years for most least terms. Being too risky with handing out mortgages is partly what lead to the housing bubble in 2008 afterall. If they're really certain their job will be stable long term PMIs shouldn't really be a deterrent, most PMI can be terminated after meeting 20% in equity.
  • freitzkriesler2 4y ago
    You don't need 20% down. This is a lie that keeps getting perpetuated. I put 3.5% down on my first house and even with PMI the mortgage payment is less than rent. To add insult to injury, the massive housing inflation of the past 2 years got the LTV well above 20% which then allowed me to remove PMI lowering my payments even further.
  • jackson1442 4y ago
    My rent for a 1 bed, 1 bath apartment is higher than the mortgage on a family member's 4 bed, 3 bath. _That's_ the issue: homeowners are putting less money into an investment vehicle while renters are burning even more money. If rent actually reflected the value received versus owning a home I'd be less opposed to it.
    • lotsofpulp 4y ago
      *In some places.
  • mgkimsal 4y ago
    > Being too risky with handing out mortgages is partly what lead to the housing bubble in 2008 afterall. Being aggressively risky with little downside was a bigger root. I worked in a mortgage comp for a bit before the big crash. "You want a 150% loan-to-value loan, no money down, no intention of proving income or ability to repay... sure, that'll be 7% instead of 5%. Sign on the dotted line..." I was blown away when I learned about 'no down, no doc' loans, which... yes, it's another variation, but... the interest rate was all of ~2% higher, which seemed in no way to cover the risk. But no one cared, because everything was just sold to someone else, and packaged up in to CDOs, and resold again. Someone who has 'only' 18% of a purchase price down, good credit, and steady income... to be charged extra PMI - possibly for years, because "we need to re-valuate the property 3 more times".... seems to be just more price gouging, not actually addressing real risk.
• vondur 4y ago
  Wasn't that a part of the problem with the real estate meltdown back in 2008? We had people getting into loans with either zero down or far less than 20% paying only the interest and not the principal for the first 5 years. They were told that real estate value only ever increases and they'll be able to refinance the loan and put the new equity into a standard loan. That worked fine until it didn't and the whole thing came crashing down. I thought I saw that 10% down mortgages are more common now, except you will have to pay for PMI until you have enough equity to cover a certain amount of the loan.
  • throwswaydollar 4y ago
    Maybe wallstreet is trying their luck again
  • fghsqwads 4y ago
    It was even worse than that at the bottom of the market. There were people getting 'nodoc' loans where they did not prove their income. People were inclined to mark their income down as the presumed appreciation of the home value, like some sort of financial Ouroboros.
  • parineum 4y ago
    You're missing a major factor. Those loans had variable interest rates and balloon payments. They were told they could refinance before the balloon payments came due into conventional loans but when housing prices drop, you can't refinance because you owe more than it's worth. Combined with "no document" loans (aka, people lying about their income), people were buying houses that they very literally couldn't afford, not just in the "that's too much of your income" way, actually in the, "that's more than your income" way. Those were the subprime loans you hear about. 2008 would have been very different if everyone was on a conventional 30yr fixed loan.
• smallerfish 4y ago
  I did an FHA loan on my first house 15 years ago, and the down payment was peanuts. Unless you have a poor FICO or your debt ratio is high, you probably qualify. https://www.fha.com/fha_loan_requirements https://www.fha.com/fha_loan_requirements
  • billiam 4y ago
    I don't think you got the point of this article. Maybe read it again?
    • smallerfish 4y ago
      I was replying to the parent who said that getting a 20% down payment is a big obstacle. Maybe read the comment in context of the discussion again?
  • loeg 4y ago
    You may still need 3.5% down, and there are income limits on the FHA program. It doesn't fix the problems with high housing prices, either.
    • smallerfish 4y ago
      3.5% down is not ridiculous if you are being realistic about what you can afford as a first time purchase (and certainly better than 20%). And as for income: https://www.nerdwallet.com/article/mortgages/fha-loan-requirements#fha-loan-income-requirements https://www.nerdwallet.com/article/mortgages/fha-loan-requir...
  • sbarre 4y ago
    How much was your total mortgage? Because housing prices have gone up dramatically in the last 15 years, and the math that worked back then (in terms of total mortgage amount, monthly payments, etc) doesn't work anymore today for a lot of people.
    • smallerfish 4y ago
• nemo44x 4y ago
  Buy a "starter house" and begin to build equity. It's how people have always done it. You buy a really small house that isn't in the most desirable location and start making payments into it. Down the road you have built equity and you can sell your starter home and buy a nicer, larger house. You maybe have some family to support then and need more room. But you see young people renting for 15 years in expensive places of cities because they want to be close to nightlife/etc. and then trying to figure out how to come up with a 15%-20% down payment on a dream house when they're nearing 40 and wondering how anyone does it and complain the system is broken. They do it by buying a small house in an expensive location and building equity and then upgrading.
  • rs999gti 4y ago
    I don't know why you are being downvoted. Buying small, building equity, and trading up has always been a thing in home ownership.
    • nemo44x 4y ago
      It's the same people who voluntarily choose to pay top dollar to go to an out of state university when their local university is just as good and then find themselves 100k in debt and with an unemployable degree and complain the system is broken.
    • Miraste 4y ago
      "Buying small" is often no longer possible due to the insane increase in housing cost relative to wages, making that advice out of touch. Going on to blame this on the youth and their nightlives doesn't exactly reverse this impression.
    • borroka 4y ago
      Because this assumes that the value of the property increases more than inflation. And this assumption means that you see and treat the place where you live as an investment.
      • sokoloff 4y ago
• gwright 4y ago
  > It took a handful of years of renting cheap places (with roommates) Is this now considered unusual? I didn't purchase my own home for almost 12 years after graduation from college. I lived at home, then with roommates, which was a completely normal thing to do at the time (1987 college graduation).
  • cool_dude85 4y ago
    It's more usual than ever, but living at home or with roommates still makes it very difficult to ever afford a home. Let's take a look: 1999 median home cost: $165,000; 1999 median household annual income: $42,000; 1999 home cost / annual income: 3.9 2022 median home cost: $468,000; 2022 median household annual income: $71,000; 2022 home cost / annual income: 6.6
    • staringback 4y ago
      You can't mention home prices without the interest rate as well. 1999 interest rate: 4.74% 2022 interest rate: 0.08% Source: https://www.statista.com/statistics/187616/effective-rate-of-us-federal-funds-monthly/ https://www.statista.com/statistics/187616/effective-rate-of...
      • NDizzle 4y ago
        "2022 interest rate: 0.08%" that's not true for 2022 as a whole. Did you mean 2021?!
      • 93po 4y ago
        Mortgage rates were around 8% in 1999. They're about 6% now. But it's also a moot point because it doesn't make housing any more affordable when the offset is higher house prices.
    • gwright 4y ago
      I wonder what the square footage of those median homes were in 1999 vs 2022.
  • TedShiller 4y ago
• rs999gti 4y ago
  > but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance) Mortgage insurance is not a bad thing. But the FHA loans in the US solves the 20% issue by only requiring 3.5% down.
  • bumby 4y ago
    I think their point was that the additional cost of insurance may skew the affordability
• wankle 4y ago
  20% is a huge requirement. The following can help anyone who's a veteran and reading this, regarding the downpayment: https://www.benefits.va.gov/homeloans/ https://www.benefits.va.gov/homeloans/
• waynesonfire 4y ago
  do you know why they can't afford a down payment? dave ramsey has some ideas, maybe related to the boom in the luxury industry? https://finance.yahoo.com/news/momma-cant-protect-dave-ramsey-110000358.html https://finance.yahoo.com/news/momma-cant-protect-dave-ramse...
• duncan-donuts 4y ago
  When my wife and I bought our first house we made significantly less money but were in this situation. We worked with a local bank that would do downpayment assistance where you'd have 2 mortgages, but your primary mortgage would get a 20% downpayment that would prevent having to carry mortgage insurance for the life of the loan. It worked our pretty well for us. I dunno how common this is or available it is to people.
• judge2020 4y ago
  > especially the 20% needed so as to not need to get mortgage insurance PMI affects the affordability but not by much - maybe $300-400/mo or so, and if you can get a conventional loan with a 3-4% down payment (which do exist) then it'll drop off once you've paid off 20% of the principal. For conventional mortgages, the max DTI most lenders will be fine with is 45%, but let's be safe and go 40%. Let's take a household income of 150k, that's $12,500 a month, so you can have up to $5000 in monthly debts (DTI is based on GROSS income). If you have, say $1000 in monthly debts (eg. minimum student loan payments, minimum CC payments, and cars), you'd likely be approved for up to $4000 in housing expenses, which with 3.5% down and a worst case scenario interest rate of 7.3%, means a maximum home price of about $500,000. But when you factor in PMI, you'd only qualify for $450,000 since PMI is about $358 a month. That's not all that much of an affordability drop - the difference is that you're basically forced to fall in line with urban sprawl by buying a smaller house further out, maybe even to the point where you're driving 40+ miles to work.
  • smileysteve 4y ago
    > maybe $300-400 If you're paying this in PMI; while your monthly principle payment is also less than $300-$400; you're renting from the bank -- ignoring outlier home price increases.
    • hd95489 4y ago
      And you are so over levered the only way you can get out of pmi is if the house market goes up 25-30% (re appraisal Usally comes in low)
• lacrosse_tannin 4y ago
  The mortage payment isn't less than rent, at least for me. IF I got a "3.5% FHA loan" it'd be.. more. I don't know how to check how much mortage insurance would add at the moment. I'm glad everyone was able to make it work 15 years ago though!
• lolinder 4y ago
  > especially the 20% needed so as to not need to get mortgage insurance The mortgage insurance isn't nothing, but it's not a big enough cost to warrant waiting until you have 20% down if that's still a long way off. You can also very easily remove the mortgage insurance once you get to 20% equity, so it's not like it sticks around throughout the entire mortgage if you can't scrape enough together at the beginning.
  • thebigspacefuck 4y ago
    For me it was like $80 a month for a couple years until I refi-ed and it saved me a couple hundred thousand. I wouldn’t do it now, though.
  • prds_lost 4y ago
    With the exception of FHA (life for < 10% down, otherwise 11 years prior to ability to request MIP removal).
    • swatcoder 4y ago
      That only applies within the original loan. You can just refinance out of it (when the numbers are right), and it’s often easy since you now have equity, a proven payment history, and are presumably looking at even lower payments on the new loan.
  • politician 4y ago
    The problem appears when you try to buy a home from a seller entertaining 10 other offers, most of which are cash offers for 10-20% over listing price with escalation clauses. It can be really hard to buy a home, especially in markets like Seattle, because the seller chooses which offer to accept and, all else being equal, will accept the offer with the fewest conditions (no financing required, inspection waived, etc).
    • the_gastropod 4y ago
      Yep. This. I'm living in a much lower COL area, but it's still crazy. I've been hunting for a house for the past ~6 months. And have been outbid in every offer by someone else waiving inspection, waiving appraisal, and/or paying all-cash. It's wild how many people are apparently able to / willing to behave that way.
• sb8244 4y ago
  I bought a house in 2021 and not only was the mortgage rate 2.75, they also waived PMI for 10% down. I don't think we would've gotten this same house without that combination. Feels like it will be a while before it's that low again
• lacrosse_tannin 4y ago
  The mortage payment isn't less than rent, at least for me. IF I got a "3.5% FHA loan" it'd be.. more. I don't know how to check how much mortage insurance would add at the moment. OK I found a calculator and it'd be 5k instead of 3k per month.
• kortilla 4y ago
  Mortgage insurance isn’t much. It’s really just the difference in extra interest on the larger balance that gets you. You also get worse rates in general for under 20%.
• bastardoperator 4y ago
  Even if they can FHA with much less down, they're stuck with PMI which is the biggest bank grift in the history of America. I'm extremely fortunate to have a VA loan. We need more loan programs that are like the VA but don't require people to give up 5 years of their life or being forced to fight in wars. The bottomline is being less fortunate shouldn't cost you more.
• binarymax 4y ago
  Depending on the jurisdiction, the taxes are what get you. The mortgage looks cheap but pile on another 3.5% of the assessed house value per year and it’s not fun. That being said - I think it’s good to get a property of your own as soon as possible. The rent situation is only getting worse.
• mattgreenrocks 4y ago
  Dirty secret: many people get help from their parents to get over the hump of the initial down payment. IMO, that is the best use of an inheritance: helping kids secure assets earlier rather than later, which sets up the rest of their life.
• mikestaub 4y ago
  There is a huge opportunity for a DAO to buy, fractionalize, insure, and create a rent-to-own program. Real estate investors can be disintermediated.